Student Loan Market in for Some Serious Trouble

Banker Resource November 20, 2013 — 1,077 views

In a recent meet at the Federal Reserve Bank of St. Louis, Rohit Chopra from Consumer Financial Protection Bureau said that it would be very irresponsible of the financial regulators if they made any more delays in shielding the student loan debt market worth $1.2 trillion from a severe crunch. Chopra is the top official of the bureau and looks into the student loans department.

Time to Take Action

He advised that the regulators have plenty of choices available to go ahead with reformative options which will not require them to wait for the orders of the government. They can go ahead with getting more data from the lenders or coming up with polices that will help in encouraging the refinancing of these loans.

Chopra said that presently the student loan market does not have regulations, as well as vital data that are necessary to prevent any sort of financial crisis from cropping up. He further said that the temptation to come to a conclusion on this matter by looking at it solely through the lens of education policy should be avoided. In fact, it requires the regulators as well as the financial services industry to look into the matter very deeply. The government had given out a number of reforms in the mortgage market. If the regulators look into these reforms, they may come across ideas that will help them in dealing with the structural deficiencies that are being experienced in the loan market for students.

Avoiding the Crisis Similar to Housing Market Collapse

Chopra said that he is mainly concerned about the loan market going the same way as the housing market, the collapse of which cost the economy dearly. He mentioned that he has noticed a few similarities between both, such as significant rise in students opting for a loan and not being able to pay it and also extensive use of government guarantees by the means of federal loan programs.

According to the reports of CFPB, nearly 40 million people in America have an outstanding student debt of $1.2 trillion. It also revealed that each borrower is holding around $30,000 on an average in the debt.

While there is an increase in the number of people opting for this kind of loan, the wages that graduates who are freshly out of college have started to decrease. Chopra explained the link suggesting a serious crisis that it may get increasingly difficult for them to pay off their debts. This may soon lead to a situation similar to the one that gripped the housing market a few months ago.